Sitting back while collecting monthly rent sounds appealing to most of us. However, there are some important things to consider before you make a plunge into owning and managing a rental property. Here is a list of things to consider before making the move.
1. Location, location, location. We’ve said it before and we’ll say it again. Invest in the best location you can afford. It will determine the kind of tenants you will attract, and how much rent you can charge. Consider the proximity to business centers, military bases, schools and recreation before choosing a location for your rental.
2. Decide on whether to hire a professional Property Manager. There are many options for property management solutions on the market today. You don’t have to hire a full-service property manager if all you need is rent collection, 24/7 emergency notification and maintenance coordination. Look for a property manager you can build a rapport with and develop a transparent professional relationship.
3. Think long term. For most small investors, long-term ownership makes the most sense. You’ll have plenty of time to ride out any swings in the market, and your rental income will be a nice supplement to your day job. Historically, real estate has been an excellent investment, always appreciating a few points over the rate of inflation.
4. Have down payment cash on hand. These days, buying a non-owner occupied property requires at least 25-30% down.
5. Don’t go overboard when you’re fixing up your new rental. You don’t necessarily need granite countertops and stainless steel appliances. After all, you’re going to get some reasonable wear and tear when the tenants move out. Most renters are happy with units that are light, bright and clean.
6. Calculate the cost of ownership. This includes all the expenses of owning and managing an investment property, not just mortgage payments. Common expenses include property taxes, insurance, utilities, maintenance, vacancies, and repairs. A rule of thumb is to set aside about 10% to 15% of monthly rent for property expenses.
7. Have a list of trusted contractors to maintain your property. Start collecting recommendations for electricians, plumbers, painters, and contractors. You will need them sooner or later.
8. Always screen your tenants. Run a credit report, a criminal check and call old landlords and supervisors. Ask if they paid the rent on time, what condition the property was when they left, and if they caused any problems with the neighbors.
9. Read up on your rights and obligations as a landlord. Learn about the eviction process and other potential issues so you can do things right, saving time and money.
10. Enjoy the advantages of your investment property. When managed correctly, investment properties are a great source of a passive income. Take advantage of amazing tax benefits to make your investment worthwhile.